Stock Metric Comparisons: P/E, ROIC, EBITDA, More

Stock metrics rarely answer one question. P/E and PEG both look at earnings, but only one accounts for growth. EBITDA and FCF both claim to measure profit, but only one survives capex and taxes. This guide pairs the metrics investors mix up most often and shows when each one wins.

Each entry covers the formula, a worked example, and the question the metric is built to answer. Use it as a router: pick the right comparison for the question you are asking, then click through to the full breakdown.

Valuation Multiples

Valuation multiples translate price into a per-unit cost: per dollar of earnings, per dollar of revenue, per dollar of book value. The three pairings below cover the multiples investors run first.

P/S vs P/B (Price-to-Sales vs Price-to-Book)

P/S divides market cap by annual revenue. P/B divides market cap by book value (assets minus liabilities). One values the revenue stream, the other values the net assets behind it.

Example: A SaaS firm with $1B in revenue and $50M in equity prints P/S 5 and P/B 100. A bank with $1B in revenue and $5B in equity prints P/S 5 and P/B 1. Identical P/S, completely different P/B story.

Interpretation: P/S below 1.0 often signals undervaluation in revenue terms. P/B below 1.0 means the market values the company at less than its net assets.

Best for: P/S for growth and pre-profit firms; P/B for banks, insurers, REITs, and other asset-heavy sectors.

Learn more: P/S vs P/B: Which Valuation Metric Fits Your Strategy

P/E vs PEG (Price-to-Earnings vs Price-to-Earnings-Growth)

P/E shows what the market charges for current earnings. PEG divides P/E by the earnings growth rate, asking whether a high price tag is justified by fast growth.

Example: A stock at P/E 30 with 10% growth has PEG 3.0, which screams expensive. The same P/E 30 at 30% growth has PEG 1.0, which prices growth fairly.

Interpretation: PEG below 1.0 = cheap growth, around 1.0 = fair, above 2.0 = expensive growth.

Limitation: PEG breaks when growth estimates are unreliable, cyclical, or negative. A solid P/E means little if the growth denominator is built on optimistic forecasts.

Best for: P/E for comparing mature peers in the same sector; PEG when growth rates differ across the names being compared.

Learn more: P/E Ratio vs PEG Ratio: Key Differences Explained

Trailing P/E vs Forward P/E

Trailing P/E uses the last twelve months of reported earnings. Forward P/E uses analyst estimates for the next twelve. Trailing is grounded in audited numbers; forward carries persistent analyst optimism.

Example: Per FactSet, analyst consensus has overshot S&P 500 EPS by 6.9% per year on average since 1998. A stock at trailing P/E 25 and forward P/E 18 looks cheaper on the forward number only because the denominator is a forecast.

Interpretation: S&P 500 long-run averages sit near 19.6 trailing (Yardeni, post-1936) and 18.6 forward (10-year FactSet average).

Limitation: Trailing P/E is undefined for unprofitable companies. Forward P/E flatters stocks where consensus runs too high, which is often the wrong moment to buy.

Best for: Trailing for audited reality and long-horizon screens; forward for forward-looking peer comparisons paired with skepticism on the estimate.

Learn more: Trailing P/E vs Forward P/E: Which Number to Trust

Company Size and Cash Flow

Multiples answer "is this cheap?" only after the numerator and denominator are picked correctly. The next three pairings cover the inputs themselves: equity price versus full takeover cost, then two views on accounting profit versus real cash.

Market Cap vs Enterprise Value

Market cap measures equity (shares outstanding × share price). Enterprise value adds total debt, subtracts cash, and includes preferred stock and minority interest, giving the full takeover price.

Example: A company with $10B market cap, $3B debt, and $1B cash has EV of $12B. A buyer pays for the equity, assumes the debt, and pockets the cash. Same business, two different price tags.

Interpretation: Cash-rich firms can post EV below market cap. Highly leveraged firms post EV well above it. The gap exposes the capital structure.

Limitation: Market cap is sensitive to leverage; EV is leverage-neutral but distorts when off-balance-sheet items or stale debt figures slip into the calculation.

Best for: Market cap for sizing equity stakes and index weighting; EV for comparing mixed capital structures and valuing acquisitions.

Learn more: Market Cap vs Enterprise Value: The Real Buyout Price

FCF vs EBITDA

EBITDA strips interest, taxes, depreciation, and amortization from net income. Free cash flow subtracts capex, taxes, and working capital from operating cash flow. EBITDA is an accounting proxy for operating profit. FCF is real cash to owners.

Example: A telecom prints $5B EBITDA but spends $4B on capex to maintain its network. Real cash to owners is closer to $1B. The EBITDA story flatters the cash reality.

Limitation: EBITDA understates the cost of running capex-heavy businesses. FCF can swing year to year on working capital timing, masking the underlying trend.

Best for: EBITDA for cross-company multiples and lender ratios (Debt/EBITDA, EV/EBITDA); FCF for DCF inputs and judging cash return to shareholders.

Learn more: FCF vs EBITDA: Which One Measures Real Cash

Net Income vs FCF

Net income is bottom-line accounting profit after D&A, interest, and taxes. FCF is real cash after capex. Accruals push the two apart for years at a time.

Example: A retailer reports $200M net income on $2B revenue. Add back $60M D&A and $30M stock-based comp for $290M operating cash flow, then subtract $120M capex: FCF lands at $170M. Same year, two different profit stories.

Limitation: Net income hides capex through D&A and can be reshaped by accounting choices. FCF swings on working capital and capex timing, blurring the trend.

Best for: Net income for EPS, P/E, and reported headline figures; FCF for DCF inputs and real cash returned to shareholders.

Learn more: Net Income vs FCF: Which Number to Trust

Capital Efficiency

Valuation says what the price is. Capital efficiency says whether the underlying business deserves it. The two return metrics below split on what capital they count and what they ignore.

ROE vs ROIC

ROE divides net income by shareholders' equity. ROIC divides NOPAT (operating profit after tax) by debt plus equity minus excess cash. ROE rewards leverage; ROIC ignores it.

Example: Two companies both earn $100M on $1B in invested capital, so both run at 10% ROIC. The leveraged one funds itself with $200M equity and posts 50% ROE. The equity-financed one with $1B equity posts 10% ROE. Identical operations, very different ROE.

Interpretation: Buffett's quality bar = 20% ROE for ten years with no year below 15%. ROIC above 15% with a 3-point spread over WACC marks a genuine moat.

Best for: ROE for banks and insurers, where capital structure is part of the business model; ROIC for industrials, tech, retail, and any cross-sector quality screen.

Learn more: ROE vs ROIC: Formula, Differences and When to Use

ROIC vs ROA

ROIC isolates the return on capital actually deployed in operations. ROA spreads net income across every asset on the balance sheet, idle cash and acquisition goodwill included.

Example: A company holding $50B in idle cash on a $200B asset base looks mediocre on ROA but exceptional on ROIC. ROA carries the cash drag in its denominator; ROIC strips excess cash before dividing.

Interpretation: ROA benchmarks vary heavily by sector. Banks run at 1.0-1.5%; industrials clear 5%+. ROIC above WACC creates value regardless of the absolute number.

Limitation: ROA distorts under heavy cash piles or large goodwill from past acquisitions. ROIC inputs become unreliable for banks where operating and financing capital are inseparable.

Best for: ROA for banks, where loans dominate assets; ROIC for cross-sector capital efficiency comparisons.

Learn more: ROIC vs ROA: Capital Deployed vs Assets Held

Valuation Models

Multiples are quick comparables. Discounted models price the future cash a company can return to its owners. The two methods below split on what counts as cash.

DCF vs DDM

DCF discounts free cash flow to the firm. DDM discounts dividends only. DCF prices the cash a business generates; DDM prices the cash an investor actually receives.

Example: A regulated utility paying $3 per share with 4% growth and 8% cost of equity has DDM value $75. A non-dividend compounder reinvesting cash at high ROIC needs DCF: the dividend stream is zero, but the underlying cash generation is not.

Limitation: DCF is sensitive to terminal value assumptions, which often drive 60-80% of the result. DDM requires stable payout policy and breaks for non-payers or erratic dividends.

Best for: DDM for utilities, REITs, banks, and mature consumer staples with reliable payout policy; DCF for non-dividend payers, growth compounders, and acquisition pricing.

Learn more: DCF vs DDM: Which Valuation Model Fits Which Stock

Choosing the Right Comparison

No metric stands alone. The pairings stack into a screening process.

Start with valuation. Run P/S vs P/B first to size the company in revenue and asset terms, then narrow with P/E vs PEG once the direction is clear. For takeovers or peers with very different debt loads, swap market cap for enterprise value.

Validate the cash story. EBITDA flatters capex-heavy sectors. FCF strips out the flattery. If the EV/EBITDA looks cheap but FCF is thin, the multiple is hiding capital intensity.

Test the quality. Cheap is not the same as good. ROIC against WACC tells you whether the business creates value or destroys it. ROE then layers on the leverage choice. ROA acts as a sanity check for asset-heavy businesses.

Decision flow: Value investors lean on P/B, FCF, and ROIC: tangible assets, real cash, value creation above the cost of capital. Growth investors lean on PEG, P/S, and ROE: growth-adjusted earnings, revenue traction, and the leverage that scales returns. Cyclical or capex-heavy targets need EV-based multiples and an FCF check before any quality screen runs.

The key insight: every multiple has a denominator that breaks somewhere. P/E breaks at zero earnings. P/B breaks for asset-light models. ROE rewards leverage that ROIC ignores. Pick pairs that cancel each other's blind spots, never one metric on its own.

The Bottom Line

Each comparison in this guide answers a different slice of the same question: what are you really paying for, and what are you really getting? Use the pairings to triangulate. Run two or three together, watch where they agree, and trust the conclusions where they overlap.